#34 - Software is eating healthcare

Can tech be a competitive advantage in healthcare? And news from the world of healthcare

Things That Happened

Stoddard is sailing west. Jack Stoddard has been recruited as the COO of the Amazon/Berkshire Hathaway/JPMorgan healthcare joint-venture. As for his credentials, Christina Farr lists them

…most recently general manager for digital health at Comcast. Previously, he was on the founding team of Accolade, a Comcast Ventures-backed start-up that helps workers manage their health benefits. He was also part of the executive team that created claims processing engine Optum, which was later acquired by UnitedHealth.

Stoddard has been around the block, and clearly understands insurance and digital health. And Comcast is actually fairly innovative when it comes to health benefits. We can assume Stoddard will be managing the operational implementation of Gawande’s vision. 

As for the overall mission of the group, Warren Buffett characterizes it as such: 

Like Columbus leaving, we don't know where the hell we're going exactly," Buffett added. "But we hope there's another continent out there and we don't go off a shelf at some point.

Gawande and Stoddard seem to have the widest of missions: head in that direction to see what you can see, and don’t fall off the edge. 

News for the allergic. Because Pfizer and Mylan can’t seem to make enough Epi-Pens, Walgreens is now stocking the Auvi-Q epinephrine auto-injector. List price: $4,500 (or 4.5 iPhone X’s). But don’t fret: it’s covered by most commercial insurance, and if your insurance doesn’t cover it the cash price is just $360 for two, or free if your household income is less than $100,000. Ahh, drug pricing math. 

Wanted: CEO. Must be willing to work for free. This January, Intermountain Healthcare announced it would be forming a consortium of providers to begin manufacturing their own generic drugs. This week the consortium got a name - Civica Rx - and a CEO: former Amgen executive Martin VanTrieste. Civica’s raison d’etre is to provide a stable supply of hospital-administered drugs to its partner hospitals. As these hospitals join, they must contribute initial funds towards the overall venture, and commit to purchasing drugs from Civica, per Zachary Tracer in Bloomberg. It’s very much a socially-missioned organization - three foundations are contributing startup funds and VanTrieste is working pro bono - but will still facilitate higher profitability for the for-profit members of the consortium (like Hospital Corporation of America). 

But why are supplies of these basic, commodity drugs so unreliable? Ultimately it’s a market failure; they represent a minor portion of profitability for drugmakers who spend much more time and effort marketing blockbuster drugs worth billions. For a deeper dive into the issue, Erika Fry has an exemplary long-read in Fortune. 

Oh, and it’s worth noting: Amazon is very interested in healthcare, especially getting into the hospital purchasing department, and is adept at solving the sort of supply-chain issues plaguing this space. It wouldn’t be at all shocking to see them making moves here in the future. 

Things Worth Understanding

I used to have an ongoing debate with my father. I’d posit that if a company delivers its core value through software, it’s a tech company. He’d disagree, saying that even if you’re watching Netflix on your phone, Netflix's value is in the content. Really, we’re both right. Without the content, Netflix has no value. But without software, Netflix has no way to deliver content, and thus also has no value. 

This consideration becomes more important when determining the role of software-derived value in terms of competitive advantage. Can better software be a competitive advantage for a company that isn’t strictly selling software? 

The answer, in my opinion, is an unequivocal yes. Especially so as time and technology progress. 

Technology enables process optimization. We have processes for accomplishing tasks, and applying technology to these processes can make then faster, easier, and more efficient, often to the point that technology enables the existence of entirely new processes. 

Returning to Netflix: The company began delivering DVDs by mail. Technological improvement enabled the company to move this delivery of content to a purely digital medium. Netflix could dramatically improve consumer experience (no more waiting for DVDs to come in the mail), and also change the economics (because of process efficiency via digitization) to the point where content consumption was unlimited, thus creating the online video membership model. And as a result the old model has been disrupted into irrelevance. 

Netflix is what it is today because they were able to use technology to improve process to the point it enabled an entirely new model. This new model proved to be an insurmountable competitive advantage for incumbents. 

Especially important here is that Netflix’s transformational technology turned a process that involved the movement of physical media into one that was purely digital. To borrow Fred Wilson’s conceit, they went from atoms to bits. Purely digital processes will always be faster and more efficient. 

It stands to reason, then, that companies that are better at making software are better equipped to compete in an increasingly digital world. 

This is especially important for the tech giants making assertive moves into healthcare. Healthcare is becoming much more digitally oriented (albeit far more slowly than other industries). As this happens, companies like Alphabet, Amazon, and Apple will find it easier to enter the space and make an impact simply by virtue of being better at creating software than healthcare companies. 

But it’s not just the tech giants who will discover advantages: healthcare startups that put software and technology first will take down incumbents. I’ve written fawning words on how Oscar Health is reinventing the insurance tech stack from top to bottom. There is little doubt in my mind this will serve as the key enabler of their growth, and that they have a real chance at reinventing the entire health insurance experience off this foundation.

As Oscar innovates, it will be harder for incumbent insurers to keep up. Oscar has an extremely product-integrated technology team. As they construct new software, even at the lowest levels of infrastructure that a customer will never interact with, they have product considerations in mind. How do we build an infrastructure that will enable us, in the future, to pay doctors in realtime, or to tell a patient how much a visit will cost before they schedule it? 

This stands in opposition to old-line companies that run their technology divisions primarily as integrators of purchased systems and applications. In these companies, technology is viewed piecemeal as a means to improve specific processes. They might purchase a claims processing system from one vendor, a customer relationship manager from another, and then toil away to make them talk to each other. Tech-forward companies will build systems and applications from the ground up that are intended to not just talk to each other, but contemplate the needs of the user and the strategic goals of the company at all levels. 

Another element that cannot be ignored is who is building software at these companies. A recent Stripe/Harris poll of c-level executives across 30+ industries produced this takeaway: 

Access to software engineers is generally considered a bigger constraint to growth than access to capital. And while the point needn’t be belabored, tech companies and hot startups have a much easier time courting, incentivizing, and retaining top software talent. They’re offering MLB salaries and prestige, while incumbent healthcare companies look more the minor leagues. 

This is my newsletter, so I get to have the last word in the debate with my father: debating whether companies are tech companies or not is increasingly irrelevant. As the team at Andreessen-Horowitz is fond of saying: software is eating the world. Every company will soon be a tech company. Whether they can migrate purely into the realm of bits and away from atoms, or must rely on physical interaction to deliver value, bits are growing in importance as the differentiator. And those companies that embrace bits and put technology first will be the winners.

Things To Read

Digital health products require buy-in from both the user and their health care provider.” This comes from Robin Goldstein, who recently left Apple after serving (most recently) as Senior Manager of Health Special Projects. I argued last week that Apple is laying the groundwork, with their health records API, for creating an ecosystem in which developers can create digital health applications that span from patient-use directly into the clinic. I’ll take the above, and the rest of Goldstein’s piece in CNBC, as corroborating evidence of that strategy.

You either have dementia, or a French accent. Dave Gershgorn wrote this week in Quartz about some of the major problems facing AI technologies in the healthcare space. One example: an auditory test for Alzheimer’s symptoms was only accurate when dealing with native english-speaking Canadians, as that was the group it was trained on. While I’m certainly bullish on AI technologies in healthcare, it’s important to remember there are still major hurdles to both scaling these technologies, and in ensuring they don’t magnify our biases. 

“We’re patient-responsibility collection software, not a collections agency,” according to Levon Brutyan, CEO of medical debt-collection startup Collectly. This is just one of the companies Nitasha Tiku discusses in her story in Wired about the modernization of debt-collection firms. It’s a sorry sign for the healthcare system that venture capitalists see sufficient opportunity for returns in firms perpetuating flaws in the system, rather than attacking the underlying problems like incoherent billing and the overall cost of care. 

“Injuries are coming in fast and furious,” said Michael Sise, chief of medical staff at Scripps Mercy Hospital in San Diego in Peter Holley’s story in the Washington Post on the raft of electric scooter related injuries. One Los Angeles ER doctor says his team treated 18 patients with serious injuries from scooters in the last two weeks of July alone. Scooter-er beware. 

Things I Listened To 

When I need to focus to, say, write a weekly newsletter, I’ll usually reach for Four Tet. While it’s really just one guy (talk about misleading branding…), Kieran Hebden is adept at the art of the musical laptop. Check out 2017’s New Energy. (spotify)

Until next time,

Isaac 


Thanks for reading The Healthcare Handout, a weekly update on tech and business in healthcare from Isaac Krasny. You can find him at isaac@healthcarehandout.com, or on twitter @isaackrasny

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